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As we approach Tax Year end, there has never been a more compelling time to understand the value of the Enterprise Investment Scheme (EIS). Our CEO, Moray Wright, and Professional Adviser, sheds light on how EIS is making a significant impact on the UK, with 33,000 companies supported and £23bn invested. The scheme offers investors early access to some of the brightest innovations in Britain.

You can read the original article in Professional Adviser here.

The Enterprise Investment Scheme (EIS)

With many in the UK investor landscape looking closely at how we can galvanize the UK economy, the impact of the Enterprise Investment Scheme on these fledgling firms should not go overlooked, writes Moray Wright.

In early April the tax year will close. And with it several funds that channel investment into the country’s most innovative businesses, whilst offering sizeable tax relief – a form of investing known as the Enterprise Investment Scheme (EIS).

The EIS allows exciting, young businesses to raise capital for growth. And at the same time, it gives individual investors the chance to get in early on some of the country’s most promising companies.

It was 30 years ago this year that the EIS began. Seven prime ministers later, and the scheme feels more relevant than ever to the government’s priorities and the type of economy that can achieve greater productivity, growth and prosperity. Namely, transforming the UK into a science superpower.

Since its inception, the scheme has been a funding vehicle for more than 33,000 companies and injected £23bn in capital. EIS investing has grown in popularity and in 2022 it surged to unprecedented levels. The reasons why are clear – the gains for investors are sizeable and it offers a way to back the very brightest British companies.

With 30% income tax relief available via the scheme, investors can also defer capital gains tax, resulting from other assets. Furthermore, to help mitigate risks for individuals, EIS uniquely benefits from loss relief. If the value of shares were to be sold for less than the amount invested, or their value fell to zero, investors can offset the loss incurred against their capital gains or income taxation.

EIS investing isn’t a one-size-fits-all all approach. There are important distinctions in how investors can go about accessing EIS and backing early-stage companies. Fund managers are now offering a variety of products to help individuals back cutting-edge businesses. A relatively new mainstay of EIS investing are knowledge intensive (KI) funds. These funds, offer more certainty around timings for income tax relief, along with a more targeted vehicle for investors looking to buy into companies focused on intellectual property creation, innovation, or research and development – especially in emerging, high-potential sectors.

Quantum technologies

Take quantum computing – a sector for which Parkwalk is the leading UK investor. Quantum technologies look set to revolutionise our computation capabilities, with experts suggesting that the leap from digital to quantum will be greater than that of analogue to digital.

The UK has the potential to be a world leader in this field, and UK investors should be at the forefront of ensuring our emerging companies have the capital needed to grow. Of course, it is nascent technology and the risks of investing in early-stage quantum companies are certainly higher than alternative assets. That’s why we have led the way in deploying tax-efficient investment to nurture and grow six cutting-edge quantum companies in our portfolio, across both hardware and software.

More widely, EIS offers a means to be the first to back the talent and research base which underpins so much of the UK economy, whilst benefiting from generous tax reliefs. There are very few other avenues that allow investors to get behind the companies spinning out of our universities. From life sciences, to clean tech, to deep-tech, the founders commercialising cutting-edge ideas have incredible potential to transform the economy and make a genuine difference to society’s future.

With many in the UK investor landscape looking closely at how we can galvanize the UK economy, the impact of EIS on these fledgling firms should not go overlooked.

There are risks, and EIS investing is not for everyone. But for 30 years, EIS investing has proven to be a boon for young businesses, especially in technology and science. And with the tax burden at its highest since World War II, astute investors seeking to leverage available tax reliefs before the end of the fiscal year consider it carefully.

Please visit Professional Adviser’s website for the full article here.

*Personal tax circumstances may differ. See our Investment Memorandum for further information. Tax reliefs accurate as at March 2024.